New research has revealed that it would take less than a $100 rise in monthly repayments before the majority of Aussie mortgage holders start to lose grip on their home loans.
The latest research from comparison website finder.com.au reveals 57 per cent of borrowers can only handle a minimal rate rise – that is, less than a $100 rise on top of their existing periodic repayments.
An additional $100 in repayments per month (on top of current repayments) is equivalent to an increase in the average home loan rate of just 0.45 per cent based on the national average mortgage of $360,600.
The average standard variable rate sits at 4.83 per cent across the market, and a rise to 5.28 per cent could tip 57 per cent of mortgage holders over the edge, according to the study.
Finder.com.au money expert Bessie Hassan said with rising interest rates, some borrowers have little breathing room.
“The typical mortgage holder will begin to struggle once interest rates reach around 5.28 per cent. That’s a pretty small window before borrowing costs start to hurt,” Ms Hassan said.
“The reality is, borrowers have over-extended themselves if it only takes a $100 leap in repayments for more than half of home owners to reach their tipping point.
“With mortgage rates on the rise, it won’t take much for borrowers to be in trouble. This raises concerns about mortgage holders being exposed to mortgage stress, where they may be forced to use a larger portion of their income to repay their loan.”
Thirty-nine per cent of mortgages are interest-only loans, and Ms Hassan said it’s no wonder the Reserve Bank and APRA are concerned.
The research revealed that 18 per cent of borrowers can handle a monthly increase of $250, while 14 per cent can manage a monthly increase of $1,000 or more in addition to their existing repayments.
[Related: Big four bank lifts fixed interest rates]
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James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.